Thursday, March 19, 2015

FedEx Corporation Q3 2015 Earnings

            On March 18th, FedEx Corporation (FDX) reported their 3rd Quarter earnings. They reported an EPS of $2.01 up from $1.23 last year. This managed to beat consensus estimates of $1.87. Furthermore they missed analysts' expectations for revenue by $90 million as they reported revenues of $11.7 billion up 4% from 11.3 billion last year.  Operating income increased 50% to $962 million from $641 million last year and as a result operating margin increased to 8% from 6% last year. Finally net income increased 53% to $580 million from $378 million last year. Overall, FedEx benefited from increased volume during the past peak season, decrease in fuel costs, and their profit improvement program.
            The FedEx Express segment posted revenues of $6.66 billion compared to $6.67 billion last year. US domestic package volume grew 4% however revenue per package decreased 2%. Furthermore, international export revenue per package decreased 4%. These mixed results were as a result of lower fuel surcharges and unfavorable currency rates that offset possible revenue growth. The FedEx Ground segment posted revenues of $3.39 billion up 12% from $3.03 billion last year. Also, they had an operating income of $558 million up 14% from $490 million last year. Average daily volume for this segment grew 7%, revenue per package increased 3%, and SmartPost revenue per package increased 8%. This was mainly caused by increased rates and postage costs. The FedEx Freight segment posted revenues of $1.43 billion up 6% from $1.35 billion last year. Operating income increased 94% which led to an operating margin of 4.8% up from 2.6% last year. This was as a result of an increase of 3% in Less-than-Truckload (LTL) average daily shipments and 3% growth in LTL revenue per shipment
            Finally, FedEx projected a diluted EPS of $8.80 - $8.95 for 2015 assuming continuous moderate global economic growth. These results failed to meet analysts' expectations of $8.97 diluted EPS. Also, they maintained that capital expenditure will be $4.2 billion for 2015. As a result of their earnings report, FedEx stock price fell 1.41% to $173.30 by the time the market closed on Wednesday. Overall, although outlook for 2015 did not meet expectations, our investment thesis remains strong. FedEx Corporation is still a great company to hold on to and will continue to cut costs and expand in the future. 

Thursday, March 12, 2015

Stress Test 2015 Results; Capital Levels Strongest Since 2008 but Big Banks Still Struggle

The 2015 Federal Reserve’s Comprehensive Capital Analysis and Review had largely positive effects on the Street. For this first time ever, all 31 banks tested were found to have adequate capital and would be able to continue lending in a severe economic downturn. While banks have continued to strengthen their capital positions, four of the six largest U.S. struggled to pass the tests.

Citigroup, which had failed the test two times in the last three years, earned approval for its capital plan- a major goal of CEO Michael Corbat. Citigroup was given the green light to raise its quarterly dividend (which has been around one cent since 2008) to $0.05. The bank was also given approval for the buy back of up to $7.8 billion of its own shares, up from $1.2 billion in the previous year. Citigroup traded up 3.34% on the day, closing at around $54.08

Bank of America (BAC) has problems with their internal controls. The bank needs to resubmit its capital plan before winning approval for boosted shareholder returns. Bank of America has until September to submit a new capital plan.  The weakness in their capital plan comes from their loss and revenue modeling practices in their internal controls. Investors expected a complete rejection of Bank of America, however regulators only rejected some of their plan. Bank of America is planning on a $4 billion dollar stock buyback. As of midday Thursday (3/12/15), BAC is trading lower at -1.12%. (Paragraph Contributed by Mike Lorka)

Deutsche Bank and Santander Bank were the only 2 banks to pass the first round capital tests but fail the Fed’s qualitative analysis. The main reason these banks failed was for their inability to model losses and identify risks.

Overall, the 2015 CCAR had positive effects on the financial sector. Heading further into 2015, I believe this is just another positive event that reiterates my view of strong expected performance for the financial sector. We will continue to monitor BAC closely as the process of resubmitting its capital plan unravels. 

Thursday, March 5, 2015

US Ecology 2014 Q4 Earnings Release

On Friday February 27th, US Ecology reported their Q4 and fiscal year earnings. During Q4, US Ecology reported strong earnings as they delivered a quarterly revenue of $157.2 million up 164% from last year and operating income of $19.1 million up 24% from last year. This boost in revenue was primarily caused by the progress made in the integration process of The Environmental Quality Company (EQ) which US Ecology acquired last June. So far they are on schedule and predict that they have 14 months left in the integration process since it is scheduled to take two years. Overall, for their fiscal year earnings, US Ecology posted a revenue of $447.4 million, up 122% from last year and a net income of $38.2 million, up 37% from last year. Although yearly EPS missed consensus by $0.02, there is positive outlook going into 2015 for US Ecology.
Major changes are occurring within US Ecology that are poised to ignite growth in the future. Recently, US Ecology has restructured its operational segments. Now, US Ecology operates in two segments: Environmental Services (ES) Segment and Field and Industrial Services (FIS) Segment. The ES segment consists of all the US Ecology operations and Legacy EQ treatment and disposal facilities and currently accounts for 70% of US Ecology’s revenue. It primarily provides hazardous and non-hazardous materials management services including waste disposal, treatment, recycling, and transportation at company-owned treatment and disposal facilities. The Field and Industrial Services  segment consist of all Legacy EQ field and industrial services business and currently accounts for 30% of US Ecology’s revenue. Services include waste packaging, collection and total waste management solutions. Together these segments form the new US Ecology.
Management seems to be quite optimistic going into 2015. They project the revenue is going to reach $585 - $620 million next year up % from 2014. Furthermore, they expect their ES segment to account for 60% of that ($345 - $370 million) and their FIS segment may account for 40% ($240 - $250 million). Also, management believes that EPS will be around $1.76 - $1.92 in 2015. A major change will occur in US Ecology’s interest expense as their interest hedge program has begun on December 31st, 2014. This program is designed to make 63% of their debt be paid off at 5.2% interest. In addition, US Ecology expects tax rates to increase to around 39% up from 37.4% in 2014 because of increased profits in the US and higher state income taxes. Finally, capital expenditure is set to increase to $40 - $45 million in 2015 as US Ecology did not spend as much as they expected in 2014. In 2015, US Ecology plans on using this capital on land-fill development, infrastructure upgrades and equipment replacement of their operational facilities.

                Overall, US Ecology posted better than expected results during 2014. The key initiative they have for next year is to continue the integration of EQ into the company. Already 8 months into the 2 year process and the company has been right on schedule. Going into 2015, US Ecology will definitely have solid growth as it continues to provide effective waste management services. 

Tuesday, February 17, 2015

Wolverine World Wide Q4 2014 Earnings Release

This morning, Wolverine World Wide (WWW) reported its fourth quarter earnings and fiscal year ended January 3rd, 2015. The company’s fourth quarter net income rose as sales revenue spiked in regions overseas (excluding North America). Wolverine World Wide’s adjusted diluted EPS increased 36.4% leaving it in line with analyst’s estimates at 30 cents per share. Full year earnings per share climbed 13.3% to $1.62, compared to the prior year’s EPS of $1.43. Revenue was a company record-breaking number at $808.9 million, but just about met consensus estimates listed at $808.11 million. The rise in revenue represented a 9.2% increase y/y leaving the company with its fifth consecutive year of record-breaking revenue. During the quarter, 9 of Wolverine World Wide’s 16 brands generated double-digit revenue growth, as well as their too largest brands, Merrell and Sperry, delivering mid single-digit and high single-digit revenue growth. The company also reported a record $189.4 million in operating free cash flow, enabling Wolverine World Wide to reduce interest-bearing debt by $195.7 million.

Last month the company announced plans to significantly increase brand-building investments in fiscal 2015, in order to capitalize on growth opportunities around the globe. These brand-building investments focus on consumer-demand creation, omnichannel initiatives and international expansion. Wolverine World Wide plans to incrementally invest approximately $30 million into these brand-building initiatives for FY 2015. As for 2015 earnings, the company now expects reported revenue between $2.82 and $2.87 billion representing a 2%-4% growth y/y. They expect adjusted operating margin to decline 80 basis points, driven primarily by the incremental brand-building investments listed above. A lower interest expense of $40 million, but a modestly higher effective tax rate of approximately 27.5% is also expected. Adjusted diluted EPS is expected to drop into the range of $1.53 to $1.60. This reduction in EPS is reflected by the incremental brand-building investments, higher pension expense, and the negative impact on foreign exchange.

Wolverine World Wide reported solid earnings, the only downside being the reduction in 2015 projections that can be explained through the investments towards future expansion. The company appears to be making smart moves for sustained long-term growth and in my opinion, should be a company to hold on to. Today at market close Wolverine World Wide  (WWW) had a drop in price leaving it at $28.25 (-2.25%).

Calpine Realzies a Q4 Profit on Higher Than Expected Revenues

Calpine managed to swing a net income in Q4 because of increased operating revenues and unrealized gains on power hedges. Operating revenues for the quarter rose to $1.9 billion from last year's $1.4 billion, which came in slightly above consensus. Net Income attributable to shareholders was $210 million, or $0.54 per diluted share, compared to a net loss of $97 million, or $0.23 per diluted share, in the year ago period. Overall, 2014 was a rather successful year for Calpine as they reported adjusted EBITDA of $1.95 billion, adjusted FCF of $830 million, resulting in an adjusted FCF per share of $2.03. All three metrics hit record highs for Calpine even after the company effectively raised guidance twice during the year. Last week CPN successfully completed a $650 million nine-year unsecured debt offering of 5.5% used in part to payout some higher priced debt and in part fund growth. Also, Calpine continues to return money to its shareholders by completing $277 million of buybacks since the last quarterly call in November. CPN's stock price has been falling due to the recent fall in commodity pricing but instead of getting "stepped on", Calpine is taking advantage of decreasing commodity prices by vamping up their share repurchase program. Since the beginning of the program in 2011, CPN has show strong confidence in their own company by repurchasing approximately 25% of their outstanding shares for $2.4 billion. Calpine still continues to reap benefits in Q4 from the purchase of the Fore River Energy Center. As crude oil and natural gas prices continue to rise through 2015, this energy center's productivity has nowhere to go but up. Thad Hill says, "I hope it is evident from this report, we continue to execute operationally, commercially, financially, and strategically." For 2015 Calpine is targeting GAAP net income in the range of $295-$495 million. Adjusted EBITDA is estimated at $1.9-$2.1 billion and earnings are projected in a range of $2.10-$2.60 per share. During the earnings call last Friday Thad Hill, Calpine's President and CEO, reitterated these financial assumptions for the upcoming year, showcasing confidence in their ability to deliver value to the shareholders. He also reported that his company continues to make progress managing both their balance sheet as well as their portfolio. To conclude, I believe that Calpine is still a strong company with a lot of potential upside. Although their stock has not been performing as of late, the company posted solid results in the fourth quarter and reaffirmed guidance for 2015. Based on their guidance, this stock is undervalued at its current price. After reading what upper management said in the earnings transcript it is clear how much this company is devoted to keeping its promises. I beleive that Calpine will stay in line, if not beat guidance for 2015 which is why I still think CPN is a buy at this point.

Thursday, February 12, 2015

Ralph Lauren as a sell

Our investment thesis was that “Ralph Lauren is expected to continue to gain global market share.” This investment thesis has changed from a positive to a negative within the last quarter. The increase of the U.S. dollar when compared to other currencies is terrible for companies that rely on their exporting for revenue. Ralph Lauren has built up their global image so high that 1/3 of their revenues are from their exports. Ralph Lauren said in their earnings report on February 4th, “We gained share early in the holiday shopping period, which positioned us well, as the environment became more competitive in the three weeks before Christmas.” This statement demonstrates that without Ralph Laurens jump-start before the change in currencies that their already lower than expected revenues would have been even lower. They also stated in their earnings call, “We continued to see the best trends in Northern Europe, recovery in the southern part of the continent and more steady expansion in central Europe.” I believe that once the lagged effect of both the larger difference in the currency rates and the bad economic state of Europe are felt by Ralph Lauren it will result in larger loses.

We bought Ralph Lauren at 155.45 with a stop loss at 138. The stock is currently at 138.70, I believe that Ralph Lauren will only get worse in the near future. With this logic I think that we should sell Ralph Lauren.

Sorry for the delay, I thought it was already posted.

Wednesday, February 11, 2015

TWX beats EPS, missed Revenue

Time Warner Inc. released 4th quarter 2014 earnings before market open on Wednesday. Adjusted earnings beat consensus by four cents due to continued strength in their Turner Broadcasting and HBO segments.

The Warner Bro. segment fell 5% weighing down total revenue which decreased 1% YoY.  This segment fall is predominantly due to decrease in revenue, but there were also some one-time restructuring  charges in addition to currency exchange rate losses.

The Warner Bros. segment makes up just less than half of total revenues. However, the company seems to be well diversified in its other major segment of Network stations that have seen enough increase in revenue to offset the declining Warner Bros. segment.

Despite the company beating EPS expectations, they missed on revenue expectations. Time Warner Inc. posted revenue of $7.53 billion in the fourth quarter of 2014, while analysts expected revenue of $7.54 billion.

EPS guidance was changed to 4.60 - 4.70 dollars per share for fiscal year 2015, currently consensus is around 4.66 dollars per share. Additionally the company raised their quarterly dividend by 10 cents to 35 cents.

Shares closed up 0.25% Wednesday.